As early as this month, airlines worldwide may start testing
a strategy that could customise airfare pricing and itinerary results based on who
is searching. These personalised fares could be affected by where you live, how often you fly, the kind of
travel you do and other personal information.

In October 2012, the International Air
Transport Association, a trade association
representing 240 airlines (including companies such as American Airlines,
Virgin Atlantic and China Southern Airlines), voted to let all airlines, travel
agents and third-party booking sites such as Kayak and Expedia request personal
login information – such as your name, frequent flyer numbers and contact info
– in order to show you tailored search results and pricing. The airlines say this would allow them
to offer personalised deals, like a special package for frequent flyers that
could includes discounted airfare and seat upgrades, and increase competition
on the distribution side of air travel – and they stress that logging in would
not be mandatory for customers to see baseline fares. But critics worry that the measure will
result in privacy violations and even discrimination, allowing airlines to charge
certain kinds of passengers, such as business travellers, more than other
passengers, potentially without their knowledge.

Last spring, Delta was accused of doing just this. According to the CBS TV
affiliate in Minneapolis, Minnesota, two customers
attempting to book the exact same flight, searching on their laptops while
sitting side-by-side, found significantly different fares just because one was
logged into his frequent flyer account while the other was not.
After the story came out, Delta said it was due to a computer glitch that
lasted about 19 days.

There could also be other potential flaws with the
targeting process; for instance, if one person books flights for a group of
travellers, that first person’s information could be the one used to tailor
results. In addition, consumers concerned about online privacy may not like the
new standard, called New Distribution Capability, since it gives airlines
another venue for collecting their personal information. Following trials, the
New Distribution Capability could be fully rolled out by 2015 or 2016,
according to the International Air Transportation Association.

The fact
is, airlines already set and alter fares based on who they believe will fly
where and when. As the Wall Street Journal reported, a trip from Washington DC to
Hartford, Connecticut may be far more expensive than a flight from DC to
Barcelona, Spain, simply because airlines expect the DC to Hartford route to
attract mostly business travellers. Last-minute tickets sometimes provide a
similar example. As the departure date approaches, airlines don’t usually lower
prices to fill their last few seats; they jack up prices, hoping last-minute buyers
will be desperate travellers or
business travellers
– customers with little choice but to book anyway.

But considering
who is flying is just one piece of the puzzle when it comes to the complex
world of airfare pricing. Long gone are the days when government regulation forced
flight prices to be based on flight lengths (longer flights require more fuel,
longer staff hours and larger planes, which also need more maintenance). Today,
a great many factors – including the length of your flight, the length of your
trip, the airports served, how far in advance you book, what day of the week
you book on, what days of the week you book for, what time of year you book
for, whether you book around holidays and what rules or restrictions apply – are
plugged into the elaborate algorithms that ultimately decide the many
different fares available for a single route on one airline – or even within a
single cabin on one flight. As a group of MIT grad students found, one roundtrip domestic flight on one airline
can yield tens of millions of different
possibilities for
routes and fares. If, for example, your desired route is served by one or more
budget airlines, such as Southwest or AirAsia X, that is a significant
consideration for mega-airlines, such as United or British Airways, which are forced
to reduce their prices for at least some economy fares in order to compete. If low-cost
airlines aren’t in the mix for a particular trip, you’re likely to encounter much higher fares across the board.

Budget airlines work by providing bare bones service as cheaply and
efficiently as possible and then charging for any and all extras. To keep
prices low, their strategies can include: making smaller airports their hubs
(to reduce airport fees), jet fuel hedging (committing to long-term fuel contracts
that lock in current prices), using one aircraft type for all flights (to cut
maintenance and staff training costs), making the whole plane an economy cabin
(which reduces staffing needs and aircraft costs), and making seating “first
come, first serve” (to cut the costs associated with intricate booking
systems). When searching for fares on budget airlines though, be aware of the fees. Standard ones include baggage
fees, food and beverage fees and fees for paying with a credit card. But getting
creative with fees allows some airlines to push prices down even further. This is why budget airline Ryanair, notorious for
offering ultra-cheap fares around Europe, also
charges for reserved seating, priority boarding, bringing infants on board,
carrying musical instruments or sports equipment and re-issuing
boarding passes.

In the US the
emergence of low-cost airlines including Southwest and Spirit Airlines has contributed to a phenomenon
that most flyers are surprised to discover. According to The Atlantic magazine,
airfare prices have steadily fallen – by about 50% overall – since the
US airline industry was deregulated in 1978, making it possible for budget
airlines to emerge and compete.

Today
however, economists and passengers worry that the scope of competition is
rapidly diminishing, as more large airlines merge to make mega-airlines. This
year, air travellers are waiting to find out whether the latest merger, the marriage of American Airlines with
US Airways, will reduce competition further, causing prices to rise and customer service to fall. Just
last week, the massive merger was approved in court, paving the way for what will be
the world’s largest airline.

When the
merger is said and done by fall 2013, a mere four airlines will control some 70% of the world’s
air travel. This latest bit of news will no doubt create additional factors to
throw into the mix when it comes to setting fare prices. Prospective passengers
can only hope the impact won’t be higher prices for fewer perks.

Travelwise
is a BBC Travel column that goes behind the travel stories to answer common
questions, satisfy uncommon curiosities and uncover some of the mystery
surrounding travel. If you have a burning travel question, contact Travelwise.